Moneycontrol Pro Panorama | Saving Nvidia

Dear Reader, The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of. For Indian investors, the goings-on at Nvidia are mostly of academic interest, unless their portfolios are heavily weighted to the US, big tech stocks or to the embattled chip-maker itself. They should, however, keep a watch over goings-on in the AI world. This development is expected to create waves and not just ripples in this gigantic industry by size and its anticipated future impact on humanity, although it's still a fledgling one by age.

Jensen Huang was left with no choice but to resign from the company he founded and led to commanding heights in the AI universe, selling chips, equipment and technology to the data centres powering the AI models. It's a world in which trillions roll off the tongue easily, with Nvidia itself trading at a market capitalisation of $4 trillion. This is after falling 13 percent in the matter of five trading days and losing 27.3 percent from a month ago. Part of the decline is also due to an unwinding of the AI trade due to rising rates and the mid-term elections' drubbing suffered by the Republicans.

Revelations of Huang's extra-marital affair with a suspected Chinese spy have been followed by allegations of two more affairs with employees. It's proving to be a costly misstep, for himself and the company built around him and his persona. You don't need a management guru to tell you that 60 executives directly reporting to Huang may create a flat structure on a presentation slide (if you can fit them there) but it will be a nightmare if something were to happen to the one at the top of the pyramid. That moment is here. This management style is not unusual at startups where the much touted 'founder mode' is in play.

Do read this FT article (free for MC Pro subscribers) on the topic, which says, 'By giving entrepreneurs free rein over all aspects of a business, founder mode has served the tech industry well, particularly when promising companies are still in their early, formative years. The risks of the culture at the biggest tech companies, however, are now clear when AI is at the heart of the economy, national security and just about everything else'. Who will replace Huang eventually is the question. Nvidia's CFO has taken interim charge. A number of internal and external executives are being considered, according to this Moneycontrol article.

But it won't be easy if the person in question has not been blessed by Huang, as Tim Cook was by Steve Jobs, or is of the same stature. Those 60 people are not going to adjust well to shifting from reporting to the One to a lower persona. It's going to be a challenging transition. Of course, it's been proved time and again that the institution is greater than the individual, but the peculiar operating structure employed by Huang will take some doing to unwind and set the company back on course. The crisis comes at a time when AI is readying for a take-off with Nvidia playing the role of a lynchpin.

As this FT article puts it (free to read for MC Pro subscribers), 'There's a lot of Jensen jeopardy in almost every corner of the AI industry'. It talks about how Nvidia has become the 'indispensable magic sauce' powering the generative AI revolution--the company is also one of the biggest investors in the AI industry, with $124 billion worth of investments. One of the unique features of the AI buildout has been the financial inter-linking between companies making their businesses inter-dependent. Even if one big link falters, the others will feel the pain. Right now the link everyone is watching is Nvidia.

Huang was not just a deal-maker but also a diplomat of sorts, meeting heads of state, striking country-wise deals, and even convincing Trump to allow Nvidia to sell chips to China to power the country's tech ambitions. That episode has now become a political hot potato after the affair with an alleged Chinese spy. The Democrats have the powers to call for investigations and conduct hearings after having won a majority in Congress and the Senate. There are fears that these could eventually result in tightening of chip exports by the US that could lead to a blowback. For Nvidia, that could cut out a sizeable slice of its revenue.

But it will tear the AI world apart too, as the FT article notes, 'Increasingly, the rest of the world will have to choose between the red China tech team and the blue US team. Huang will no longer be there to help bridge the divide'. All this is happening while the Anthropic IPO is being lined up where it plans to raise funds to meet its expansion plans. Investors now have an entirely new set of questions to ask, on whether the Nvidia episode's repercussions can have a material impact. Do read Abhijit Dutta's take on the company's valuations. What will happen at Nvidia over the coming weeks and months will be crucial.

Will more skeletons tumble out of the Huang closet? The revelation of affairs with two employees may cast a shadow on the board -- were they truly in the dark or did they look the other way? Will Nvidia's importance to the US economy, the huge investments dependent on it and national security considerations lead to the US government taking a more active role in resolving the issue? While a financial bailout may not be needed, board-level changes and even a CEO-appointment could be mandated. President Trump has already proposed Tim Cook's name. Restoring confidence is paramount, for Nvidia's employees, its investors and for the massive investments riding on the generative AI ecosystem.

For India's investors, while the crisis seems far away, an implosion will cause a disruption that could hurt our markets as well. Investing insights from our research team Weekly Tactical Pick | UltraTech Cement: Can better realisations, easing input costs unlock stock upside? HAL: Multiple defence programmes strengthen long-term order visibility CONCOR: Poised for a volume recovery; operating leverage holds the key IKS Health - Why it merits attention of long-term investors What else are we reading? Above 6% and Spreading: The inflation data the RBI cannot ignore Chart of the Day | Falling gold prices may lift retailers' performance A Rs 8,400-crore potential bill for Yes Bank - Should investors be worried?

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